Taking business risks: is there a compliance policy for that?

How many compliance officers does it take to change a light bulb? None, because they insist on a qualified electrician from an approved vendor that meets safety and insurance requirements, has had a criminal check and done the firm’s induction and diversity courses.

The compliance officer, for their part, checks the electrician’s work and writes a report. Another compliance officer checks the report is filed correctly. Eventually the light works.

How many compliance managers does it take to change a lightbulb?Credit:Jonathan Kitchen

Sorry for my lame, exaggerated joke, but you get the point. An epidemic of unnecessary compliance is infecting companies with extra cost and slowing them. Not to mention torturing employees who have to tick more boxes to get things done.

No surprise, then, that compliance and risk is a boom profession. The Australian Financial Review reports that Chief Risk Officers have become among the most powerful and highest-paid executives at banks – behind only the CEO and Chief Financial Officer. Headhunters note rising demand – and salaries– for compliance and risk officers.

Globally, The Economist reports that some banks have hit “peak compliance” such has been the rush to add compliance officers, which it describes as the “killjoys of finance”. The finance sector now needs an army of in-house “police men and women” to keep it in check after the Financial Services Royal Commission.

Still, don’t downplay the importance of compliance. Clearly more is needed when banks sell insurance to dead people and home loans to people who can barely afford a new jet ski or Bali holiday.

Nor should one underestimate the value of compliance and risk management. We could fill the MCG with compliance officers and the cost would be less than the tens of billions of dollars wiped off the value of bank stocks after scandals

And don’t fall for stereotypes about compliance officers being nerdy types who enforce rigid rules. Yes, some of them make accountants look like cocaine-snorting rock stars, but a few chief risk officers I’ve met have interesting roles and their work is as much about strategy – and helping companies take calculated risks – than stifling growth.

I am, however, suggesting that governments, regulators and market operators need to think carefully about overreacting with excessive regulation; every time a new rule, standard or governance guideline is released, somebody has to check it is followed and report on it. Then a layer of people develops outside the organisation who check that information. We end up with an entrenched compliance culture.

As Telstra and other corporates make thousands of workers redundant, we are adding layers of compliance and risk officers – or in some cases “bullshit jobs”, as the anthropologist David Graeber puts it.

What happens when you add more risks officers? They find new problems, to justify their work.

I heard of one company that insists staff hold the handrail when they walk up stairs. What’s next? Risk officers telling staff to tie their shoelaces properly? Or gag themselves at the office Christmas party so they don’t say something that offends someone, somewhere.

Excessive focus on risk and compliance risks dulling corporate innovation and entrepreneurship; staff find it harder to experiment, fail and try again because there are too many rules.

All this talk about “agile” technologies and ventures is laughable when the companies are loading up on compliance and becoming less nimble.

I still believe most people go to work each day to do the right thing by their firm, peers and customers, and that most organisations are capable of consistently doing the right thing without being forced to by excessive compliance and rules.

The best defence against bad behaviour is culture: creating a workplace where staff are encouraged to make the right decision; where bad news travels quickly to the top; where staff are properly incentivised rather than encouraged to gouge customers; and where there are consequences of inappropriate behaviour at all levels.



A culture that reinforces good behaviour and weeds out the bad, and balances the needs of the company, shareholders, staff, customers and other stakeholders. That’s a hundred times more effective than layers of compliance forcing staff to behave a certain way.

Perhaps we should be appointing chief culture officers and elevating the role of human resources professionals. Imagine if the next boom was in experts who can design and maintain workplaces that improve the employee experience. My guess is happier workers would flow through to happier customers and there would be fewer scandals.

That has to be easier – and more fulfilling – than an avalanche of compliance.

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